Schroder Japan Growth (SJG)
22/04/2024
Results analysis from Kepler Trust
Intelligence
Schroder Japan Trust (SJG)
has published its half year results covering six months to the end
of January 2024. Over the period, the trust delivered NAV total
returns of 10.3% and a share price total return of 5.8%, which
compares to a 9.1% total return from the TOPIX
Index.
The board has committed to a
tender offer over a four-year period starting from 01/08/2020.
These results mean the trust is well ahead of this mark on an
annualised basis.
A mid-cap automotive
component manufacturer topped the performance table driven by
strong earnings growth, buoyed by the recovery in Japanese
automotive production. Hitachi also performed well, driven by
management shifting focus to improve shareholder
returns.
Gearing averaged 9.5% over
the period and helped returns, and has increased slightly
post-results.
SJG's discount widened to
11.1%, in line with its own five-year average and the AIC Japan
sector, prompting the board to buy-back shares. SJG's discount has
since come in slightly.
Chairman Philip Kay
commented, "The Japanese equity market has enjoyed a strong start
to 2024." He also noted: "The board remains very positive on the
long-term equity market outlook because corporate Japan is in the
middle of a major transformation which is already resulting in
improved shareholder returns. This transformation has been a long
time in the making".
Kepler View
As the chairman notes, there
have been many false dawns with the Japanese equity market. While
some scepticism remains, we think this time is different, with the
index finally exceeded the bubble-era high, boosted by Japan's
corporate transformation and governance reform
push.
The manager employs a
differentiated strategy, targeting high-quality, undervalued
companies across the market-cap spectrum, which have attractive
growth characteristics. This focus brings a strong valuation
sensitivity, meaning the portfolio tends to tilt to value, very
different from the most peers.
He believes the current
opportunity set is vast and there is a considerable divergence
between larger companies and smaller companies, which Masaki
currently finds more appealing. He has therefore added a number of
stocks to the portfolio from this part of the market, examples of
which are beneficiaries of long-term structural tailwinds, but
their shares have recently been sold down meaning there is
significant upside potential.
Masaki also initiated a new
position in Nippon Steel. He reports being impressed with
management's efforts to improve the stability and growth profile of
its earnings, particularly the increased focus on
profitability.
Overall, these are good
results for SJG with NAV total returns ahead of the TOPIX Index,
keeping it on track to outperform its tender performance target.
The continued outperformance of value stocks, as well as the
manager's use of gearing, have been strong contributors to
returns.
We think SJG offers
differentiated exposure to Japanese equities through a portfolio of
undervalued businesses with strong growth prospects. Masaki's
approach further down the market cap scale could make SJG an
appealing proposition for investors looking to play Japan in a
differentiated way. The current double-digit discount could still
be an attractive entry point for investors should strong
performance lead to it narrowing.
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