Templeton Global Growth Fund Limited (ASX: TGG)
Templeton Global Growth Fund Limited (ASX: TGG) invests in a globally diversified portfolio of international equities. It outsources its investment management and administration functions to Franklin Templeton Investments Australia Limited, which is a member of Franklin Resources Inc.
The company was formed in the year 1987. It maintains a portfolio of investments in companies listed on international stock exchanges.
September 2019 Quarterly Investment Report
As per the release on October 21, 2019 global stock markets experienced huge volatility in the period on account of macro-economic concerns and interest rate cuts by apex banks in various developed and emerging nations in order to revive growth. The US Federal Reserve (Fed) cut rates by 50 basis points and the European Central Bank (ECB) brought back rates into negative territory. During the period, there were transition from growth stocks to value stocks especially at the starting of September 2019. Moreover, airstrike from drone at Saudi Arabian oilfield spiked tensions in the Middle East. Overall, growth stocks performed better than value stocks for the 9 out of the last 10 quarters.
In financial sector, company favoured well capitalized, well managed banks with sound balance sheet and healthy dividends operating in the stable markets and trading at discounts to the tangible book value. In the pharma and healthcare sector, shares of Israeli generic drug maker Teva Pharmaceutical Industries struggled over ongoing opioid litigation. On financial performance, the drug maker has posted better than expected earnings. However, the company’s high financial and operating leverage in the competitive, commodity-like generic drug industry increases the investment risk profile.
In energy sector, Shell shares declined in August 2019 over disappointing earnings report and amidst continued industry uncertainty given weaker oil prices and risks of a slowdown in global economic growth. However, capex is expected to remain at lower levels on addition of new production, while cash flows and returns are expected to continue to expand in the near term, especially due to BG acquisition.
In communication sector, UK-based multinational telecommunications company Vodafone reported first-quarter earnings results and full year guidance surpassing expectations. The company has an attractive growth opportunity in fixed broadband in a number of markets.
Looking at TGG’s Portfolio characteristics, price to earnings (PE) at the end of the quarter was reported at 14.8x, as compared to PE multiple of benchmark ‘MSCI All Country World Index’ at 17.7x. Price to Book Value for the portfolio stands at 1.2x, as compared to benchmark’s 2.3x. Price to Cash Flow for the portfolio stands at 5.5x, as compared to benchmark’s 11.2x. Market Capitalisation for the portfolio stands at $149,322 Million, as compared to benchmark’s $198,337 Million.
Templeton’s portfolio diversification as per geography indicates that its exposure to Europe stands at 47.5%, as compared to benchmark’s 19.3%. Exposure to North America stands at 31.0%, as compared to benchmark’s 58.9%. Exposure to Asia stands at 20.7%, as compared to benchmark’s 17.0%. Exposure to Mid-East / Africa, Latin America / Caribbean and Australia / NZL stands at 0.8%, ~0.0% and ~0.0%, as compared to benchmark’s 1.2%, 1.4% and 2.2%, respectively.
As per sector allocation, TGG’s portfolio has maximum exposure to Financials at 21.2%, as compared to benchmark’s 16.7%. Its exposure to Health Care stands at 15.8%, as compared to benchmark’s 11.3%. Exposure to Communication Services stands at 14.0%, as compared to benchmark’s 8.8%. Rest sectors such as Energy, Industrials, Information Technology, Consumer Staples, Materials, Real Estate, Consumer Discretionary and Utilities have exposure of 11.4%, 11.1%, 8.4%, 4.5%, 5.1%, 3.9%, 1.3% and 3.3%, as compared to Benchmark’s exposure of 5.5%, 10.5%, 16.3%, 8.6%, 4.7%, 3.3%, 10.8% and 3.5%, respectively.
FY19 Key Highlights for the year ended June 30, 2019
On investment performance front, TGG showed an annual return of 4.0% as on June 30, 2019, as compared to the MSCI All Countries World Index which showed a return of 11.3% for the same period.
Investment Performance (%) (Source: Company Reports)
Yearly Investment Performance (%) (Source: Company Reports)
Net Profit after income tax (NPAT) for the period was reported at $4.2 Mn, as compared to NPAT of $3.5 Mn in the previous corresponding period. Net asset value of the company (after considering interim and final dividend payment) declined from $331.7 Mn in FY18 to $304.1 Mn in FY19, after the consideration of company’s share buyback program where $11.0 Mn shares were bought back. Revenue for the period was reported at $10 Mn, as compared to $9.2 Mn in the previous corresponding period. Net tangible asset (NTA) after actual tax for the period was reported at 145 cents per share as compared to 156 cents per share in the previous year.
Net Tangible Assets Data (Source: Company Reports)
As per share issues and buy-back program, company didn’t operate a dividend reinvestment plan (DRP) in the FY19. It bought back 8.5 Mn of shares at an average price of $1.30 per share and at an average discount to NTA of 12.4%, as compared to 4.9 Mn of shares at an average price of $1.39 per share and at an average discount to NTA of 10.2% in FY18. The number of ordinary shares on issue decreased over the year from 221.7 Mn to 213.2 Mn, after accounting for cancellation of shares as a result of share buy-back.
On October 18, 2019, TGG informed the market that it has signed a new investment management agreement with incumbent manager Franklin Templeton Investments Australia Limited for a revised fee structure with reduced management fees, better aligning the interests of the Investment Manager with the company, effective from November 1, 2019. As per the new agreement, the company will charge a lower annual management fees of 0.75%, which will be charged on company’s market capitalization along with a capped performance fee. The agreement is valid for a term of three years. Earlier the management fees represented 1.0% of net tangible assets (NTA). After taking into account the quantum of management fees, Franklin Templeton Investments Australia Limited will receive a performance fee of 20% of outperformance against the MSCI World All Countries (Net Dividends) Index.
On the stock information front
On October 22, 2019, TGG settled the day’s trade at $1.210 up 0.415%, with the market cap of ~$253.98 Mn. Its current PE multiple is at 63.420x. It has generated an absolute return of -12.04% for the last one year, -3.98% for the last six months, and -3.60% for the last three months.
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